One of the most contentious parts of the 2017 tax law was the cap placed on state and local tax (SALT) deductions. For years, taxpayers in high-tax states have been limited to deducting only $10,000 in combined state income and property taxes on their federal returns.
Now, under the new tax reform bill, the SALT cap is getting a significant — though temporary — lift, along with a new income-based phaseout. Here's what’s changing, and what it means for your 2025 and beyond tax strategy.
Key Change: The SALT Deduction Cap is Increasing
Starting in tax year 2025, the SALT deduction limit will rise to $40,000 per return (or $20,000 for married individuals filing separately). This new cap will:
Increase slightly each year through 2029 (indexed for inflation)
Return to $10,000 in 2030 unless Congress acts again
High Earners Face a Phaseout
The full $40,000 deduction won’t be available to everyone. Starting in 2025, a 30% phaseout will apply for taxpayers with modified adjusted gross income (MAGI) above a threshold:
$500,000 MAGI in 2025
$505,000 MAGI in 2026
Indexed upward by 1% annually through 2029
The phaseout reduces the deduction by 30% of the amount over the income threshold — but it can’t reduce your deduction below $10,000.
Example:
If your MAGI is $550,000 in 2025:
$50,000 over the $500,000 threshold
30% × $50,000 = $15,000 reduction
SALT cap becomes $40,000 − $15,000 = $25,000
You still get at least $10,000, no matter how high your income goes.
How Modified Adjusted Gross Income (MAGI) is Calculated
MAGI for the SALT deduction phaseout includes:
Your regular adjusted gross income (AGI)
+ Any excluded income under sections 911 (foreign earned income), 931, or 933
This definition will primarily affect U.S. citizens living abroad or in U.S. territories.
What This Means for You
If you live in a high-tax state: This is likely a welcome change. More of your property and income taxes will now be deductible, lowering your federal tax bill.
If you’re a high earner: You’ll benefit more than under the previous $10,000 cap, but not as much as middle- and upper-middle-income earners unless your AGI is below the phaseout threshold.
If you're in real estate, tech, law, or finance: Pay close attention—this could change year-end tax planning significantly over the next five years.
This update to the SALT deduction cap represents one of the most material tax changes in the bill for high-income individuals and professionals in high-tax states.
It creates meaningful planning opportunities over the next several years — and it raises the stakes for strategic income and deduction timing.
Want to know how much you can expect to deduct in 2025 under the new SALT rules? Or how to plan around the phaseout thresholds? Reach out to our team — we’ll model it out for you.